UPDATE – Entire Call Stream Added – Tesla Q2 Financial Call
No boring, bone-headed questions, please.
It’s been ten long years since the last Tesla earnings call with analysts in the first quarter of 2018, and now it’s happening again. Ok, maybe it’s just been three months, but with so much happening in the interim, it certainly feels like it happened a decade ago.
UPDATE – We’ve posted the entire call in video form below:
First, there was the backlash from that last call after CEO Elon Musk snapped at Bernstein analyst Toni Sacconaghi, referring to his followup question as boring and bone-headed. This was followed by a hard push to reach Model 3 production levels of 5,000 per week by the end of June that saw the company erect a new production line under a tent-like sprung structure and its top executive sleeping on the factory floor.
Of course, probably the most famous incident (of several) again involves Musk who, after responding to requests to help rescue a boys soccer team trapped in a cave in Thailand, built a “mini-sub” that ended up unused — the boys, thankfully, were rescued by divers. One of the British ex-pats involved in the rescue effort was later dismissive of Musk’s involvement and made a rude suggestion as to what he could do with his contraption. Musk then lashed out, referring to the ex-pat as a “pedo guy.” Though he deleted the tweet and later apologized, the damage was done. Did we mention the mini-controversy about his donations to a Republican PAC early in 2017? No? Well, that one was a bit overblown, but it added to the embroilment of the company.
Things have been relatively quiet for the past few days now, and the focus, even more than the earnings themselves, is now on the financial call with analysts. Investors will be looking at Musk and trying to judge whether the individual whose identity is so intertwined with the automaker that its fortunes depend on his stability, is, indeed, stable.
This time around, we’re going to try to bring you the most pertinent news from the call live, as it happens. We will begin updating this post as we listen in, beginning at 5:30 PM.
In the meantime, we leave you with this video interview of Bernstein’s Toni Sacconaghi of bone-headed question fame from earlier today of what he believes the investment community is looking for in this call.
Here follows our takeaways from the call:
- Elon starts with thanks to employees for production of 7,000 vehicles in the last week of June and continuing that level of output through most of July. Suggests these deliveries are helping to drive sales.
- Potential for increasing production with existing equipment is greater than expected. Aim to hit 10,000 a week next year.
- Plan to be profitable every quarter going forward. (!!!) (There may be a few exceptions, Musk notes)
- Autopilot team is there, introducing themselves. Will discuss what they are working on. Musk says making advances in neural net and other self-driving technologies.
- AutoPilot 3rd gen hardware is developed should be deployed next year.
- A lot of discussion about the superiority of the Tesla approach to AutoPilot development. An order of magnitude more processing power.
- Toni Sacconaghi asks first question about what is driving increased vehicle margins. Musk apologizes to him for being rude on the last call. Musk puts increased margins down to improvements in the production process. Improved efficiency increases margins.
- Robin Ren (world-wide sales) mentions about half of customers are choosing dual motors at the moment. Since configurator opened, many non-reservation holders are ordering.
- Ren says top five non-Tesla trade-ins for Model 3 are Toyota Prius, BMW 3 series, Honda Accord, Honda Civic, and Nissan LEAF.
- Musk apologizes to the next analyst, Joseph Spak from RBC Capital Markets. Gigafactory3 in China costs should be closer to $2 billion for 250,000 unit production to begin. Take lessons learned from building Gigafactory1 and apply them to reduce capital expenditures.
- Note* Tesla up +$33 in after-hours trading, possibly due to much better performance here by Musk.
- All Performance Model 3 Dual Motor sedans are assembled in the tent. Says efficiency level is higher in tent.
- Analyst James Albertine asks about the funding of future projects. Musk says no to capital raises. China Gigafactory will be financed using loans sourced within China. Musk talks about paying off debts instead of financing them further.
- Adam Jonas of Morgan Stanley remarks on the improved tone of the call. Asks whether Tesla tech can be turned into Terminators…talks of (China) turning tech into weapons-grade AI technology. (!!!) Asks if BMW or Amazon might be the bigger competitor in future. Musk laughs about the Terminator suggestion, doesn’t see Amazon getting into automaking.
- Romit Shah asks about the coast-to-coast capability of AutoPilot. Musk says they could do it be “gaming the system” by focusing on a specific route, but wants the system to be more generally capable before releasing. Might be able to pull off a demo before the end of the year (believe he said the same a year ago). Breakthrough stuff coming in a month or so with Version 9 of AP.
- John Murphy of Bank of America, is tent permanent and a model for future? Experiment for now but they are learning from its implementation. Musk says they are still aiming for steel frame buildings.
- Confident in increasing margin projections – 15% in Q3, 20% in Q4, 25% in 2019? Musk: Yes.
- Musk: Manufacturing at volume is mostly a software problem, which Tesla is good at. JB Straubel adds many problems came in Model 3 production when they outsourced some of the processes.
- Ben Callow from Baird asks how close are they to being cash flow positive. Deepak Ahuja says they haven’t done July numbers yet, but will be cash flow positive by the end of the quarter. Musk adds they are confident in being profitable.
- Tim Higgins from WSJ asks if they are confident in building 1 million units in 2020. Musk bounces around a few numbers, ends up at more than 7 to 8 hundred thousand with a shot at a million. They may announce Model Y production site before end of the year, as well as Europe Gigafactory.
- Zachary Shahan of CleanTechnica asks about vehicle portfolio pipeline. Musk mentions the vehicles already known about, says production ability depends ultimately on battery production capabilities.
- Musk says they are cell starved for Powerwall. Ramping up production later this year and next. Several hundred SolarRoof homes now, still in validation program. Will ramp up more next year.
- Current bottleneck includes body production. Just made over 800 bodies in a 24-hour period.
- Galileo Russell of Hyperchange asks about where Semi production will happen and whether it uses a lot of Model 3 parts. Musk demures on production location, says yes about Model 3 parts in Semi. Russel asks about future energy production and they discuss the ramping up process. Reveal PG&E energy project is over a GWh. They say its growing faster than automaking.
- Speaking of future profitability, Musk says they won’t always be rolling in cash, but still should be cash positive. Should be self-funding, though with temporary debt, says it won’t constrain growth.
And that’s a wrap!
Overall, it was a very positive call. The apologies went a long way, and we suspect the huge stock price jump after-hours trading reflects that. Musk was tired, mumbling at times, but quite positive. The analysts had pretty good questions for the most part, and Adam Jonas was, again, a bit out there (though entertaining). We look forward to the next call in three months time when we hope to hear confirmations of, finally, profitability.